GROUP 3

Prajwal Corriea ……………Roll No 10 Anand Surve……………Roll No 51

Sandeep Dass……………….Roll No 11 Kunal Tejwani………… Roll No 53
Nandkumar Pagade……..Roll No 32 Amar Thakkar…..……..Roll No 54
According to Richard Hyman, “ Vertical Integration has
gone out of fashion in the consumer economy. Zara is a
spectacular exception to this rule “
Explain how Zara used its vertically integrated supply
chain to its advantage. What are the main drawbacks of
having a highly vertically integrated supply chain for a
fashion retailing company?
 Zara’s Vertical Integration

• In 2004, Zara’s holding company Inditex,

owned about 100 companies engaged in
activities like textile purchasing,
manufacturing and logistics.

• Due to this, Zara was able to vertically

integrate its operations.

• Eg: Comditel specialised in procuring

undyed fabrics which could be dyed or
printed as per the order.
 Zara’s Vertical Integration

• Designing
– Zara has a team of dedicated
designers, who travel across the
globe and follow the new trends.
– It has 3 design centers – one each
for men, women and kids apparel.
– Its store managers also possess
designing skills.
 Zara’s Vertical Integration

• Production
– The fabric was cut at Zara’s own high-
tech automated cutting facilities,
based on styles and sizes.
– This was done based upon the
computer layout of the sample pieces;
so as to minimize the wastage.
– Due to this flexibility, Zara was able to
stop its production for any design with
low demand and modify its processes
for designs with high demand.
– The garments are checked twice for
quality, ironed , tagged, packed and
sent for dustribution
 Zara’s Vertical Integration

• Distribution
– Carried out at Zara’s 500000 sq.m.
distribution center in Arteixo.
– This center located centrally among
14 manufacturing plants in La Coruna.
– Zara has its own railway track of 211
km through which goods are moved to
the distribution center.
– Once the trucks reach the stores, the
garments are put on display right
away since they are pre priced,
tagged and already ironed.
– Due to all this, Zara was able to
achieve an accuracy level of 98.9% in
its shipments.
 Advantages of VI
• In distribution, Zara owned it’s own railway
tracks which was the heart of the centralized
distribution process.

• Merchandize was pre-priced and ironed-

ready to be directly placed on shelves

• If zara moved away from its centralized

distribution process it would struggle in
keeping the costs low in that domain.
 Advantages of VI
• Zara’s VI is able to fulfil demands of
customers for a rapidly changing trend
and fad pattern specific to fashion
retailing

• Zara was able to compete with

international stores in its expansion spree
and became third largest retailer in terms
of revenues

• Customized deliveries based on Data

exchange between functions
 Advantages of VI
• Ability to conceptualize garment, develop
and deliver it to the stores within two or
three weeks

• Globetrotting fashion trend hunters were

Spotting new trends and siphoning off
information to designers (made possible
due to seamless integration

• Zara customers visited stores 17times a

year instead of 3-4 times, with new styles
being introduced every week the
customers visited more often

• Low inventory and high margins

 Advantages of VI
• Ability to conceptualize garment, develop
and deliver it to the stores within two or
three weeks

• Globetrotting fashion trend hunters were

Spotting new trends and siphoning off
information to designers (made possible
due to seamless integration

• Zara customers visited stores 17times a

year instead of 3-4 times, with new styles
being introduced every week the
customers visited more often

• Low inventory and high margins

 Advantages of VI
• Inhouse design and production helps
supply fresh designs to retailers twice a
week throughout the year

• Customers made their purchases earlier

due to the looming uncertainty of losing
the opportunity of buying them later

• Zara’s low economies of scale worked as

a benefit rather than a shortcoming in
terms of creating a scarcity value since it
could not use mass production and in
turn used this to maintain exclusivity.
 Advantages of VI
• The information flow from the sles taff to
the store manager to the head office was
very rapid in terms of the kind of
merchandize the customers demanded
(colors, style and fabrics).

• Detailed industry specific bits of

information to be shared between various
functions making integration
indispensible.
• Sales staff, store managers, store
specialists, designers and procurers
&production managers needed to be on
the same page which was made possible
by having all of them occupy spaces
within the same building.
 Advantages of VI
• Easy approvals of the designs and CAD
final cut as all teams were in one place
• Zara’s own design and collections were
retailed owing to VI and independence
from the traditional demands of the
retailers

• Zara’s own automated fabric cutting

factories were able to optimize production
efficiencies and drive down costs and
avoid wastage
• Enabled them to not be dependent on
limited cutting technologies of third party
cutting firms.
 Advantages of VI
• These processes reflected fashion and
design expertise were chosen to be
produced indigenously.

• Due to flexibility in the production

process, zara was able to stop production
when demands stooped low or produce
more designs in demand

• Not much stock to be discounted

• Zara could immediately realign its

resources in case there was a certain
seasonal failure of a collection.
 Disadvantages of VI
• To control costs, fashion retailers are moving
their manufacturing processes to Asian
countries like India and China. Hence, to stay
competitive Zara will not be able to continue
with its supply chain model for too long.

• Zara has centralized distribution center. It

would pose a hindrance to its aggressive
expansion to far off locations in Asia and
America, since it would increase costs on
distribution

• Also another main disadvantage of VI is the

lack of economies of scale, since Zara was
unable to reap the advantage of producing
large quantities of products to sell at
competitive prices.
In the light of Zara’s global expansion in far off locations
like Asia and America, what modifications according to
you, the company has to bring in to supply chain and
why?
 Present Scenario
• Present Scenario

Fastest delivery time as well as “twice in a

week” deliveries. Similar speed to market
experienced in groceries but unheard of in
fashion retailing

• Accuracy level = 98.9 Percent

• Distribution of Garments carried out at Zara’s

500,000 Sq Mt Distribution Center in Arteixo
• 2002 : One more plant opened at Zaragoza in
Spain

• All the garments were pre priced and and the

lots were labeled according to their
destination
 Present Scenario
• Loading Docks
Fleets of trucks took goods at their
destinations
Twice a week garments were shipped
of to the distribution center

Time Taken
Stores within Europe : 24hrs to 36 hrs
Outside Europe : 2-3 days
 Solution
The majority of Zara’s production
includes workers from Portugal and
Spain

The cost of labour is five times in

comparison to countries such as India
and China

The economies of Asian sourcing work

better for some luxury companies than
fast fashon retailers because the
margins on more expensive goods aren’t
affected as much by the cost of putting
them on a place.
 Solution
Changes Required
1) Modify Distribution System
Move away from its centralized distribution
by establishing remote distribution centers
in varied locations of operations.

2) Upgrade IT Infrastructure
Move away from the present methodology
or IT infrastructure to advanced ERP enabled
modules

3) Decentralize Production Process

Create production centers for a cluster of
countries along with individual distribution
centers for each country
 Why?
Vertical Integration Disadvantage :
Lack of economies of scale.
Zara would be unable to reap the
advantages of mass production due to
its business model that focuses on
exclusivity of stock

Cost of Labour :
Presently, Zara employs labour primarily
from Spain and Portugal
The cost of labour from these countries
is five times as compared to that from
countries such as India and China.
Most of the SCM efforts by organizations nowadays are
aimed at minimizing costs rather than on maximizing
revenues. Zara’s SCM practice is an exception. Should
Zara continue with these practices or modify. Justify and
take a stand
 Present Scenario
Instead of projecting sales for a certain
colour, fabric or style and launching such
products, Zara reacts swiftly to the
emerging trends in the fashion industry.

Some of the unique characteristics of

Zara that command the existing SCM
system are

•Styles change every week

•Producing a product in limited quantity
•Pull process instead of forecasting to
gauge market trends
 Present SCM systems
Thus, the business model required Zara to
remain competitive through increased
speed to market

Defying conventional wisdom, Zara adopted

these high cost SCM practices that included
•Three Product Lines
•Shipment through planes and trucks against
ships and trains
•Deliveries twice a week
•Shipping garments on hangars (Thereby
removing advantages of unitization)
 Our view
The present SCM practices are helped Zara
maintain low inventory. These practices
aren’t focused towards minimizing costs but
maximizing revenues.

The present SCM strategy is also not

scalable, while expanding to places far off
from the country of origin

In its broader scope and larger goal of global

expansion, Zara should do away with the
existing SCM practices of centralized
production and distribution and welcome
adoption of production in countries with
lower costs of production.
 THANK YOU
Prajwal Corriea ……………Roll No 10 Anand Surve……………Roll No 51
Sandeep Dass……………….Roll No 11 Kunal Tejwani………… Roll No 53
Nandkumar Pagade……..Roll No 32 Amar Thakkar…..……..Roll No 54